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20 July 2016

When parties approach the end of the term in a lease or wish to terminate the lease early, there are numerous considerations in mind.

Primarily, there are many valid reasons as to why a Tenant is terminating its lease, such as the need to find alternative premises to improve the location for trading purposes and expansion of the business or potential downsizing or, from the Landlord’s perspective. they may wish to occupy or redevelop. This blog considers specifically key considerations on a dilapidations position.

What are dilapidations?

Dilapidations is the term given to damages that a Landlord may be entitled to recover on the expiry of the lease for breaches of the Tenant’s repairing covenant.

What dilapidations should be considered?

Breaches of the following types of covenant should be considered when assessing the dilapidations position;

  • covenant to repair,
  • covenant to decorate,
  • covenant to comply with statute and yielding up covenant; and
  • if applicable, any reinstatement obligations linked to the obligation to yield up.

The majority of leases contain an obligation to keep premises in good and substantial repair and condition and return them in the same state of repair at the end of the term.  The reality is that most Tenants will not often fully comply with that obligation – and therein lies the shrewd dilapidations in a negotiation between the parties.

In the last decade Tenants have sought to qualify the repairing covenant by having the repairing obligation refer to a schedule of condition which shows the specific state of the property at a state of time (invariably when the Tenant entered into the lease) and the obligation to repair is qualified so that they are in obligation to repair the property and return the property in no worse a state as evidenced by the schedule of condition.

In practice we and our property litigation colleagues often come across scenarios where the Tenant has either been poorly advised at the outset or has not sought legal advice and is therefore bound in by a draconian repair covenant.

It is also worth adding that case law has demonstrated that the obligation to keep the premises in good repair is the same as an obligation to put and keep.  Any Tenant entering into a lease should be very wary thereof of these obligations, particularly if they are taking on premises that are not in a great state of repair.

At the end of the term there will inevitably be a battle over dilapidations (in relation to the cost to the Landlord to putting the premises in the condition required by the lease). The Landlord may not always be proactive in seeking to agree a figure, tending to rely on the right under the lease to claim dilapidations after a lease has come to an end.  In practice this creates some certainty for the Tenants, particularly where they may be significant costs involved in to move to new premises.

A Tenant’s perspective

If you are considering the position from the Tenant’s side there are some proactive stops that can be taken:

  • invite the Landlord to submit a dilapidations assessment at least six months before the end of the lease;
  • if not forthcoming, instruct a surveyor to assess the dilapidations on your behalf;
  • submit that assessment to the Landlord inviting them to agree the position and setting out the proposed timetable of works;
  • if still not response is received confirm to the Landlord that you will carry out the works and want to complete them, then invite the Landlord to approve them.

If the above steps are followed the Landlord arguably is in a much weaker position should it wish to submit a dilapidations claim after the end of the term.

As mentioned earlier in this article, we come across clients who are not fully advised in advance on signing their lease or chose simply to deal with the matter themselves on expiry and has come unstuck. Dilapidations are certainly a point where parties should consider open and frank discussions between themselves in the hope of reaching mutual agreement and it is always advisable to take advise on the specific provisions relating to dilapidations contained within your lease before entering into negotiations.

 

Contact Oratto on 0845 3883765 to speak with an adviser or use our contact form to arrange a call-back.

Click here to return to the commercial property area.

 

20 July 2016

It's official! Britain has voted to leave the European Union!

Whether they are cheering or crying into their cornflakes, employers across the country need to start thinking about the implications of Brexit for their business and their workforce.  So much of our employment law has originated from Europe so what will happen in practice once we are no longer part of the European Union?

20 July 2016

As a country, we’ve become increasingly aware of the impact of dementia on society in recent years.

There are roughly 850,000 people diagnosed as having dementia currently living in England and Wales and that number is set to reach more than one million within the next five years.

The condition accounts for more than one-tenth of all deaths and is already the leading cause of death for women.

However, even set against that worrying background, there are some figures which still have the capacity to shock. 

The Office for National Statistics (ONS) has released data showing that a spike in deaths among the elderly is the principal reason for the largest increase in deaths in almost four decades. 

Furthermore, last year’s increase of just over 28,000 on mortality rates for 2014 was principally due to the impact of dementia and ‘flu-related deaths among the over-75s.

In itself, it is a saddening development.

It arguably becomes more alarming when you think about the infrastructure available to cope with the scale of dementia and – perhaps more particularly – the challenges facing those who are trying to deal with it.

Five years ago, one estimate suggested that the UK would face a shortage of 100,000 places in care homes by 2020.

Since then, there has been significant investment and development in the care sector right across the UK. My colleagues and I have been involved in a considerable spread of such projects.

Even so, the prospect of far more elderly dementia sufferers still represents a huge issue and one which cannot necessarily be solved overnight.

The burden of doing so does not solely rest with the Government, which last March launched a five-year plan of action to tackle the potential problems which dementia poses. With all due respect to David Cameron, his target of making England “the best country in the world for dementia care and support” by 2020 seems a tad ambitious.

Medical research is not the only obstacle to be overcome. There are important issues of provision – whereabouts in the country will there be care homes, how much will they cost and who pays for them – to be resolved.

There may well already be homes but are they capable of accommodating those men and women with more specialist needs due to their having dementia? It is one thing to have more care beds but are they in facilities which are fit for purpose and can be adapted to look after a growing number of dementia sufferers?

Residential homes, of course, have to be paid for, both in terms of their construction and the type of care which they provide. It is reasonable, therefore, to understand why certain developers want to based in areas of the country which might in the future have people able to pay for the services which they can offer.

Local authorities, which have to pick up all or some of the cost of care, also have finite budgets and many priorities all pressing for a share of their cash.

Confronted by those many and varied facets of the problem, my experience tells me that what is needed is - for want of a better phrase - properly ‘joined-up thinking’.

It requires Government, planning authorities and developers to work together on things such as a relaxation of regulations, which can often prove an impediment to care projects getting off the ground.

A planning process which can cost companies wanting to build the sort of facilities that the rising dementia toll so urgently demands several hundred thousand pounds is certainly not an incentive to development.

This kind of collaboration is even more of an imperative. The numbers of dementia sufferers and deaths climbs higher every year.

We need to ensure that we don’t merely have enough care provision to manage now but put in place sufficient capacity to exceed even the worst estimates and give the elderly the dignity and certainty which they deserve.

 

Contact Oratto on 0845 3883765 to speak with an adviser or use our contact form to arrange a call-back.

Click here to return to the commercial property area.

20 July 2016

Following 8 days of a much publicised Court trial Gordon Ramsay was recently held liable for rental obligations accrued under a personal guarantee given to his landlord to the sum of £1,280,000.

This would not be a remarkable finding if it were not for the fact that Mr Ramsay had not put physical pen to paper in signing the guarantee.  Instead, the document had been signed with Mr Ramsay’s signature by his former business partner (and father-in-law) using an automated ghostwriter machine. 

Under these circumstances Mr Ramsay sought to obtain a declaration from the Court that he was not bound by the personal guarantee because he had not signed it.

The Court decided that as there was significant historic evidence of previous use of the ghostwriter machine, the former business partner did have the authority to bind Mr Ramsay to the guarantee and the guarantee was therefore valid.

During the course of the hearing the Court deliberated on whether in the first instance the document had been validly executed as a deed.  For this to be the case then under section 1 of the Law of Property Miscellaneous Provisions Act 1989, the document must be signed by the individual in the presence of a witness who attests to the signature or it is signed at his direction and in his presence and in the presence of two witnesses attesting to the signature. 

It was agreed that a deed did not need to be executed by pen and as the ghostwriter machine used an original signature created by Mr Ramsay the Court held that it could be used by someone to validly execute a deed provided that permission had been given for its use. 

From a property lawyers perspective the most startling issue to emerge from the Gordon Ramsay case is the magnitude of authority Mr Ramsay had given to his former business partner.  The Court found that Mr Ramsay had effectively granted his former business partner implied actual authority which occurs when the signatory has express authority to do something but also performs matters which are necessary and incidental to that authority or does what is usual for him to do in similar circumstances or what has been done in a previous course of dealing. 

Implied actual authority is problematic because although you may feel you have maintained some control over your affairs the signatory may act beyond the remit of his express authority under the belief that the authority extends to all similar dealings.

Worse still is ostensible or apparent authority which is present when an individual portrays himself as holding a position of authority to sign documents binding a company.

The clearest way to safeguard your interests is to provide actual authority by granting formal written powers of attorney limiting the scope of the signatory’s authority.

The Gordon Ramsay case is a reminder of the importance in providing clear written authorities to signatories where they sign legal documents particularly those that impose binding obligations.

 

Contact Oratto on 0845 3883765 to speak with an adviser or use our contact form to arrange a call-back.

Click here to return to the commercial property area.

 

20 July 2016

Anyone in possession of a non-domestic property whether occupied or vacant will be liable for payment of business rates. 

Fortunately there are mechanisms in place to offer temporary relief from this liability in circumstances where the property has been empty for a period of time. In the case of industrial and warehouse properties, 100% relief from business rates is available on vacant properties up to a continuous period of 6 months. Any short term lettings of 6 weeks or less during this time will not be subject to business rates. For retail property including shops and offices the period of exemption is restricted to 3 months.

For an empty property to be considered rateable case law has established that it must be capable of beneficial occupation. Conversely if a commercial property is incapable of beneficial occupation it will be removed from the rating list and no rates will be payable. 

R3 Products Ltd v Salt (VAO) [2014]

However, the issue of beneficial occupation of a tenant intending to carry out substantial refurbishment works was recently considered by the Upper Tribunal (Land Chamber) in the appeal case of R3 Products Ltd v Salt (VAO) [2014]. The tenant, R3 Products Ltd, had completed on a 10 year lease of a factory in June 2011. Shortly before completion the tenant was made aware that the high voltage electricity supply at the property had been cut off and cabling removed. The tenant had a specific requirement for high voltage electricity in order to operate its manufacturing business which was an influencing factor in the choice of factory. At this late stage in negotiations it was untenable for completion not to proceed and the landlord agreed to a 3-month rent-free period.

Immediately following completion the tenant embarked on the first phase of major refurbishment works to initially restore the desired high voltage electricity supply and thereafter to reinstall cabling and replace the factory lighting to make it compliant with health and safety legislation. When presented with a rates demand the tenant argued that the property should have been removed from the rating list during the first phase of the works as they could not use the property for the purpose in which it was leased without the high voltage electricity.

The Tribunal dismissed the appeal finding that the property was capable of beneficial occupation. When considering the facts presented, the Tribunal found that the property was ready for occupation and could be used by other potential occupants before refurbishment works were commenced by the tenant which was only required to meet their particular needs. On this basis the tenant was found to be in beneficial occupation of the property for the purpose of conducting works to make it suitable for their specific use from the time of completion of the lease.

Prospective tenants should therefore be mindful when viewing potential properties requiring refurbishment works specific to their needs as they may be caught by business rates liability even if the property is unusable by them.

Contact Oratto on 0845 3883765 to speak with an adviser or use our contact form to arrange a call-back.

Click here to return to the commercial property area.

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